Wiehann Olivier | Partner | Head | Private Equity | Forvis Mazars South Africa | mail me |
Figures released in the latest C-suite Barometer study, paint a positive picture for private equity and alternative investments, with 26% of global executives planning to use these channels to raise funds in the year ahead.
Capturing insights from over 300 private equity professionals, asset managers and family offices across North America, Europe, Asia-Pacific, Africa and Latin America, this year’s report, titled Riding the Wave of Market Change, finds that confidence in the future of the market remains high with industry professionals, despite global volatility and concerns around market fluctuations, interest rates, inflation geopolitical unease and emerging technologies like AI.
Factors driving private equity investments
The findings signal confidence in the private equity sector as a high-return asset class despite the prevailing global economic uncertainty. Multiple factors are driving the demand for private equity funding, with the report citing increased competition as a major challenge and concern.
From a local perspective, the challenging macroeconomic environment has forced banks to tighten their lending criteria, forcing many South African businesses to look to private equity as an additional avenue to access funding for expansion and innovation.
Management buyouts are another key driver. Numerous listed companies looking to delist and gain greater control and freedom to dictate their strategic growth plans and trajectory by going private – a trend that has accelerated over the last 12 months. Furthermore, global investors see value in gaining market exposure to South Africa through the growing selection of vehicles and platforms in the private equity investments space.
The challenging economic environment is also creating attractive opportunities for investors, with various high-quality distressed assets in South Africa offering good value.
Financial services and technology and telecommunications emerged as the top investment areas this year but, interestingly, investors are targeting sub-sectors and specific business models of these two industries to ensure resilience during economic uncertainty.
What is attracting local private equity investments?
Cyclical businesses and those dependent on volatile supply chains are currently less attractive for investment by private equity firms.
From a local perspective, the key sectors attracting private equity investment include renewable energy, fintech, healthcare and logistics. Market-leading innovation in the financial services sector in Africa, with its large unbanked and underserved market segments, provides massive scope for growth.
South Africa offers a springboard into the untapped high-growth African market, with fintech companies mounting successful challenges to the legacy banking business model with a focus on different services like microlending and cross-border remittance. However, private equity investors looking to leverage digital innovation within the African digital economy are cautioned to take a longer-term view due to the higher risk profile.
Additional opportunities in healthcare, especially those related to catering to the ageing population, and services that augment constrained government-funded services.
The lack of government service delivery creates opportunities to cater to the underserved market, like the drive to augment Eskom power generation with private-sector funded renewable energy and infrastructure projects.
South Africa’s role as a regional trade hub is also leading to increased investment in modern logistics infrastructure, e-commerce fulfilment centres, and last-mile delivery solutions.
The focus is on value creation
The shift towards automation and AI in supply chain management is opening doors for tech-driven logistics firms to secure private equity funding. As activity picks up, more local private equity funds are supporting domestic deal flow to reduce reliance on international finance, with a maturing sector driving secondary buyout activity, creating more exit opportunities for private equity firms.
In South Africa, the focus is on value creation within businesses that have a proven track record, with PE firms taking a narrower focus through industry vertical specialisation to deliver better returns and outcomes.
This more focused strategy ensures the private equity firm can align strategies with local growth sectors, and help identify other acquisitions that create synergies and drive growth through expansion into new markets. However, despite the opportunities and market momentum, the risk premium in South Africa remains high, especially with the uncertainty created by government policies, such as land expropriation without compensation and more onerous black-economic empowerment regulations.
The 2025 budget also created concerns about governance amid policy shifts while currency volatility is another critical factor that influences investor willingness to deploy capital in South Africa.
In conclusion
The government must provide assurances as certain policies cause hesitation among international investors looking to enter the local market. The success of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme, which is predicated on regulatory certainty.
Applying the same principles in other sectors can also unleash a flood of private equity investments and support deal flow into South Africa as markets thrive on certainty.
